Is there any relationship between Marginal Intra-Industry Trade and Employment Change? Evidence from Indian Industries

While India has developed deeper integration with global trade flows since the economic reforms initiated in 1991 in general, the simultaneous exports and imports with partner countries have witnessed considerable rise in particular. There exists a rich literature on India’s aggregate as well as sectoral overlapping trade, termed as Intra-Industry Trade (IIT). It is however argued that the static measures of IIT fails to capture the dynamism involved, and Marginal Intra-Industry Trade (MIIT) index is used to compute the trade overlap for this purpose. The current analysis observes a rising trend in India’s MIIT in select industrial sectors since 2001. However, India is also suffering from a rising trade deficit in several industrial sectors, and a possible trade-led employment effect cannot be ruled out. Given this background, the current analysis explores the relationship between MIIT and employment changes in the selected sectors. In addition, the stability analysis explores the differing influence of the independent variables on employment changes, based on trade balance pattern. The empirical results indicate that MIIT, increase in productivity, skilled workforce intensity, trade balance, trade openness and FDI inflows significantly influence absolute employment changes. Moreover, sectors with higher MIIT, high relative growth rate, skill intensity and trade balance facilitate higher absolute changes in employment.